What is your reading of the market situation with indices scaling newer heights?
The stock market is not cheap by any standards. While it is expensive, one has to appreciate that for the past 5-6 years, corporate earnings have not grown much. Earnings growth had been flat for a while. But in the last 6-9 months, we have seen earnings start moving up. So even as the market is scaling new highs, every quarter earnings are also growing. That is a good sign.
If earnings don’t move but markets keep going up, we would be in a bubble zone. After a very long time, majority of promoters are expanding. Everybody is adding to existing capacities. That lends a lot of confidence in the market. Ultimately, stock prices have to chase earnings. Interest rates have also dropped. The cost of borrowings for many capital intensive companies have fallen. Besides, companies prepared for the worst in the pandemic. They cut costs and made themselves leaner. This has fed the bottomline.
What is your advice for clients now?
Our clients are evolved enough to understand market gyrations. Most have been investing for a very long time. They understand that short term corrections are inevitable. The time we spend on with clients is on the asset allocation. This is not just at the beginning of the relationship; we keep revisiting this topic every 6-12 months. If your asset allocation is intact, then clients are not bothered with short-term volatility. They are looking at a long investing horizon. Asset allocation is crucial and ensures that you remain invested throughout, while also preventing your portfolio from becoming lopsided. If clients stick to the asset allocation, it helps deliver healthy outcomes.
This market uptick has seen first-time investors take to direct equities in droves. Do you feel expectations are set right?
During the pandemic, we have seen many first-timers enter the market. Many 15-16 year-olds have opened trading accounts for the first time. Naturally, the expectations of some newcomers are unreal. There have been very few occasions when the market has delivered such returns within a short span of time. Many of these investors were not in the market in March. So they haven’t seen the sharp decline. Let’s hope they understand the risks going ahead. Investors should set expectations in line with long-term returns from equity markets.
How is the appetite for IPOs at this juncture? What is your assessment of the profile of IPOs coming through?
A lot of promoters who want to list have a fear of the unknown—whether they will get a good subscription. But when the market is buzzing, pretty much everything flies. Liquidity is abundant. So the confidence levels of promoters of both new tech startups and old brick-and-mortar companies are high. So IPOs are here to stay for now. It is another matter if these IPOs are leaving enough money on the table for investors.
How many clients continue to lean towards active strategies? Are passive or factor strategies finding more space in any form?
Every portfolio is unique to a client or family. So these will look different from each other. There are some who are very aggressive, leaning towards active PMS and AIF strategies. Some also show interest in pre-IPO themes. There are also some who have preference for passive strategies. It depends on the risk appetite of the client. Typically clients prefer a mix of strategies. There are a few who do take a firm stance in favour of either strategy.
Has the pandemic given further impetus to wealth creation at the top of the pyramid?
The IIFL Wealth Hurun India Rich List has grown 10 times in the last 10 years, with the individuals on this list adding Rs 2,000 crore each day. Today we have 1,007 individuals, up by 179 from last year, with wealth greater than Rs 1,000 crore on the IIFL Wealth Hurun India Rich List 2021. India now has 237 billionaires, up 58 compared to last year. This year, cumulative wealth is up 51%, while average wealth has increased by 25%. When the list came out, we were at the peak of the market. Listed companies have seen stock prices move higher. That is where the rich list has grown even richer.
Are new-age startups introducing more first-gen entrepreneurs into the rich list?
This year’s rich list has seen many new trends emerging. The youngest on the rich list 10 years ago was 37 and today is 23, indicating the impact of the startup revolution. Over the next few years, we will see many of these first-gen entreprenuers come into the list.
From the Indian perspective, regulations are very supportive. Innovation has gone through the roof. Easy access to funding is also helping many of the new-age entrepreneurs to come in and create wealth not only for themselves but also for a lot of senior members of their teams. Freshworks is a recent example of a startup listing creating multiple crorepatis. A rub-off from the tech startup is happening even on the brick-and-mortar companies.
How much of the success stories stem from smaller towns and cities?
Growth in smaller towns has been explosive. These are not tech startups but other entreprenuers are coming from these places.
Many of the smaller cities have seen growth in specific sectors and are doing extremely well. This is creating more rich households in tier 2 and 3 cities. This is evident in the sharp jump in MF industry AUM coming from these cities. Even for us, a large part of our advisory business now comes from these places. Over the last decade, the number of Indian cities represented in the rich list has jumped to 76, up from 10.
